Small businesses struggle with costs and regulations

Political candidates' praise for small businesses — and their promises to help them — are often falling on deaf ears, as owners say they're struggling to keep their heads above water.

From every direction they face rising costs, from taxes, employee benefits and regulations levied by lawmakers they fear don't understand what small businesses need and even how the economy functions.

“They (politicians) listen intently, but when they get down to the bottom line, what focus will they really give small business entrepreneurs? Oftentimes it is not enough,” said Francis Carroll, founder of the Small Business Service Bureau of Worcester.

Business leaders are divided on whether the problems facing small businesses will be lessened by electing particular candidates for state or federal offices, or whether the problems are systemic.

Mr. Carroll says some politicians focus more on big businesses than small ones, partly because they have been influenced by lobbyists.

“I honestly don't think they realize that there is a difference between big business and small business,” he said.

“At least (Sen. Scott) Brown was a small businessman. The problem with Elizabeth Warren is that she knows only big business and regulation. Brown knows what a small business is. Elizabeth Warren can't relate to small business, no matter how hard she tries,” said Mr. Carroll.

Ms. Warren is supported by small businesses, however. When the Marlboro-based Massachusetts Credit Union League endorsed her at an event at the Worcester Credit Union, its president, Daniel F. Egan Jr., said she has been a “strong and vocal proponent of the benefits that credit unions provide to working families.”

Thomas Oliveri, owner of Peppercorn's Grille and Tavern and Wormtown Brewing Co., both in Worcester, likes Republicans, calling them more sympathetic to business than Democrats.

“Basically the Democrats are tax and spend. The Republicans want smaller government and are concentrating on small business,” he said. “(Presidential candidate Mitt) Romney understands how business operates. He's been entrenched in it all his life. I feel more confident with him running the ship than (President Barack) Obama. If Romney is elected, I think we will start to spiral upwards. If Obama is re-elected, I really fear this country may spiral down into some really bad economic times.”

John Lauring, owner of Lauring Construction Co. of Worcester, also likes Republicans.

“Over the years, tax cuts and other things that help small businesses have come more from the Republican side than the Democratic side. The present (Obama) administration is implementing all kinds of additional things and regulations that hinder us doing our job,” he said.

The Obama campaign says, however, that during Mr. Romney's term as Massachusetts governor, the number of small business startups fell by 10 percent, and the number of small businesses shrank. Massachusetts fell to 47th out of 50 states in job creation during Romney's term, Obama supporters said.

Consumers are spending less and saving more, waiting to see what happens in the election. This is starving retailers, whose income depends on consumer confidence.

Conflicting statistics concerning the economy — and analysis from the candidates — have added to public confusion and skepticism.

Soaring gasoline and oil prices have reduced consumers' disposable income, leaving less for them to spend at small businesses such as restaurants.

“People are uncertain what's going on, from unemployment to gas prices to the costs of a family. That's causing them to be a little panicked. If there's very little consumer confidence, people aren't going to take their discretionary income and spend it. They either don't have it or they're going to hoard it,” Mr. Oliveri said.

Sticker shock over gasoline prices has hurt, he said. “Gas prices really influence the way people spend in restaurants. When gas went over $3, my business took a pretty good hit. Once $3 was the new norm, people digested it; but as we approach $4, there is apprehension. Is it going to go to $5?”

Mr. Carroll said uncertainty remains about the direction of the economy.

“I would say that consumers and small business are not optimistic. I believe there is a great deal of concern that we are going to have another recession,” he said.

“Small business needs to see that the economy is improving — if not quickly, at least steadily,” said Karen E. Duffy, president and chief executive officer of Worcester Credit Union.

The increase in regular savings accounts has been “phenomenal,” she said. “They (consumers) are risk-averse right now, and are tending to keep more of their cash rather than spend it. It is very significant.

“They don't spend the money on the retailers. And that spills over into our business in terms of the use of credit. So if they're not buying things, they're not using the credit available to them, even when they are able to use it,” Ms. Duffy said.

Businesses are struggling to pay employee benefits, which the Congressional Budget Office estimates constitute 30 percent of total private industry compensation. Benefits include businesses' share of health insurance, Social Security, workers and unemployment compensation and others.

Mr. Lauring said when his company wins a contract, it must hire the number of employees needed to complete the job, even if in so doing the company's health insurance costs increase. “We've never said, 'I'm not going to hire that last employee, because then I'll have to change my health insurance.'

“Those are certainly big numbers for us. All those costs get passed on to the customer. And that probably hurts the economy,” he said. Companies can reduce costs by raising health insurance deductibles to shift costs on to employees. But that affects the economy by reducing disposable income, he said.

Health insurance is a burden, Mr. Carroll said. “Premiums have to be lowered. I do not know how they're going to do that, other than rationing.” Congress approved the new health program without thoroughly studying its impact on business, he said. “They're just now finding the pluses and minuses.”

“The cost of insurance is one of the big issues I'm facing. If someone needs family health insurance, I can't afford to pay them the salary I could afford to pay them if I didn't have to pay that,” he said. “I look at the taxes we pay. It's insane. You're paying out 40 to 55 percent of what you're bringing in. And if the risk isn't worth the reward, you've really got to consider, what the hell am I doing here? It hasn't got to that point yet, but it's certainly approaching it.”

“Those are the things that make or break a business. You can pass along some costs to the customers, but you can't get $25 for chicken parmesan,” he said.

Federal budget cuts ripple down to higher property taxes in places like Worcester, hurting small businesses, Mr. Carroll said. Property taxes in Worcester have forced some business owners to relocate to their homes, he said.

Beyond the question of which candidates are best is the question of whether the system itself works.

While both parties want to help businesses, partisan bickering has crushed worthwhile legislation, said Ms. Duffy, former chairman and 18-year board member of the credit union league, who chairs its legislative affairs committee.

“The president has put forward some jobs bills, but they have all been rejected, because both parties are not willing to work together. The result has been that no legislation has been enacted that could provide any support or relief to small business,” Ms. Duffy said.

For example, she said, the Credit Union Small Business Jobs Bill, S2231, to provide more credit without using taxpayer funds, is going nowhere.

“We have estimated that tens of thousands of jobs across the country could be created,” she said.

According to GovTrack.us, which tracks federal legislation, the bill has been reported favorably out of committee, but the site noted only 21 percent of all Senate bills reported favorably by committee in 2009-10 were enacted.

“That's the kind of assistance or stimulus we need, that comes with no price tag. There are consequences to the non-action that results from partisan bickering. And the problem is the government can't seem to get it done,” Ms. Duffy said.

Regulations — local, state and federal — can cripple small businesses. With few employees to do paperwork, they are less able to cope with rules that some say only much larger businesses can handle.

Mr. Lauring said regulations are among the biggest issues affecting his business.

“There's all kinds of safety stuff, all kinds of EPA and state agencies for environmental protection; plus there's lots of permits,” he said.

Mr. Carroll said politicians think the burden of regulations is moot.

“They don't care if it increases costs. They say they do, but they don't. They think there's a money tree,” he said. “Their attitude is very simple. They say, 'Do it, or go out of business.' ”